The cement industry is off to a promising start in FY12. The ongoing fiscal year may turn out to be better than the last when local cement dispatches declined by 6.6 percent and exports slumped by 11.7 percent over FY10. The reason for this optimism lies in the latest figures released by the All Pakistan Cement Manufacturers Association (APCMA), for July and August, 2011. Local dispatches and exports constitute total cement sales in a given period of time. Local dispatches are geographically segmented into north and south regions. Major exporting destinations for the countrys producers are Afghanistan and India, followed by Iraq and some African countries. The APCMA data shows that total cement dispatches in 2MFY12 grew by roughly 6 percent year-on-year. Higher local sales drove this growth; rising by 14 percent over the same period, last year. Increased cement sales in the north, which usually accounts for over 80 percent of local demand, pushed the figure higher. Southern dispatches also showed a healthy growth of 28.2 percent during the period. In a report issued last week, AKD Securities attributed the growth in local cement sales mainly to the elimination of SED and the reductions in FED & GST, announced in the FY12 budget. This in turn provided support to the post-flood reconstruction in the north and south, noted the report. There was a decline of 9.5 percent in cement exports in 2MFY12, mainly due to a slump in exports via sea-route to Iraq and Africa. Land exports to Afghanistan and India, however, posted handsome increases over the period. The growth seen in 2MFY12 cement dispatches owes itself to a 16.3 percent rise in local sales in July 2011; helped by surging demand from both northern and southern regions during the month. The month-on-month (sequential) figures show a slowdown in sales in August as the Gregorian month hosted the month of Ramazan during which construction activities were markedly lower. APCMA data shows that August cement dispatches declined by roughly 18 percent over July. As always, local dispatches determined the magnitude and direction of overall figure and declined by 19 percent. Even a spectacular 38 percent growth in cement sales in the south was not enough to lift the overall figure, as cement dispatches are heavily concentrated in the north, where they fell by 13.8 percent month-on-month. Similarly, on the export front, August sales fell by 14 percent over July. This was due to a drastic slowdown in sales to Afghanistan, owing to reduced construction activities in Ramazan and unusually high sales in July. Cement dispatches in the coming months are expected to increase; despite the likelihood that recent floods in Sindh (and some parts of Baluchistan) might reduce (re)construction activities in the near-term. Up north, the uptick in post-2010-floods reconstruction activity and building of water reservoirs would drive the growth in local dispatches. A research note by BMA Capital suggest that the "1HFY12E dispatches in north are to show sufficient improvement YoY, due to low-base effect because last years devastating floods reduced northern cement dispatches by 18 percent to only 3.9mn tons in 1QFY11." As for the exports, it appears that Pakistani cement dispatches may increase in the future as development activities in war-torn Afghanistan accelerate and expected rail routes development starts in India. The sea-route export markets like Iraq and Africa are expected to remain steady; however, Ethiopia is being touted as a potential export market worth over 8 million tons for local cement manufacturers. Since the cement market is largely dependent on local sales; going forward, it would be interesting to see if and when the authorities come up with the solutions and financing for post-flood reconstruction.
============================================ (mn tons) 2MFY12 YoY August FY12 MoM ============================================ Local 3.6 14% 1.6 -19% North 2.9 11% 1.3 -14% South 0.7 28% 0.2 38% Exports 1.5 -9% 0.7 -14% Afghanistan 0.8 18% 0.3 -26% India 0.1 68% 0.06 -3% Other (sea) 0.5 -36% 0.2 6% Total 5.2 6% 2.3 -18% -------------------------------------------- Source: APCMA ============================================
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